Initial Loan Procurement is emerging as a reliable method of raising funds in the cryptocurrency space. The new form of funding involves borrowers and creditors entering into a digital loan agreement that is based on a smart contract. Any interest that creditors earn from the funds they issue is dependent on the performance of the company they are financing.
ILPs Growing Popularity
Initial Loan Procurements have emerged as an alternative to Initial Coin Offerings that have been the subject of criticism in the recent past. For the better part of last year and this year, ICO remained the most popular funding method for digital currency projects. However growing concerns about the number of projects that collapse immediately after raising funds has seen investors remain skeptical about financing similar projects. Compliance issues have also complicated the ICO landscape, forcing emerging projects to rethink their strategy when it comes to raising funds.
Initial Loan Procurements allow loans to be tokenized and traded in the secondary market for the creation of liquidity and flexibility for investors. Once a tokenized loan is sold, an investor can enter into a loan agreement with the borrower.
ILPs vs. ICOs
ILPs also seem to have simplified the process of carrying out Know Your Customer checks thereby reducing the potential of fraud or money laundering, issues that have clobbered ICOs for the longest time. Each loan on ILP is also digitally signed and recorded’ on the blockchain, for added security and safeguard.
Initial Loan Procurements could as well be the ultimate answer to Initial Coin Offerings that continue to face a lot of uncertainty in some jurisdictions. Regulators around the world are mulling over whether to classify ICO tokens as security.
A classification of the sort will require projects to spend a substantial amount of funds raised to cover legal bills. Classification of ICO tokens as securities will also require both the borrower and the creditor to pay taxes.
ILPs, on the other hand, should act as a secure debt-based alternative to the IPO-like initial coin offerings allowing investors to invest in companies rather than a digital token. The mode provides greater protection for investors without the need of regulation compared to ICOs.